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Dress Your Portfolio for School Season

Jim Cramer

My first pick is The Children's Place(PLCE Quote - Cramer on PLCE - Stock Picks). This isn't just the best in the kids' apparel space; it's one of the best retailers out there, absolutely best of breed.

The company just reported a great quarter, beating estimates, raising guidance and posting an increase in same-store sales for the second quarter of 16%. A few weeks ago, it gave us the biggest number bump in all of retail, indicating back-to-school sales are off to a hot start. Children's apparel is absolutely on fire right now -- especially denim -- and The Children's Place has all the right products.

The Disney Stores, which The Children's Place acquired a few years ago, are also rocking. The stores posted a 15% comparable increase during the quarter, further proof that they are turning around. Gross margins also have improved, and The Children's Place feels confident the Disney locations eventually can get to the level of Children's Place stores. Going forward, the Disney Stores face easy comps in the second half and should see a boost from the upcoming release of The Little Mermaid Platinum Edition DVD in early October.

The only red flag I can see is that inventory grew faster than sales in the most recent quarter. While this is often a red flag for retail investors, the company noted on its conference call that inventories are much fresher this year. Management also explained that they have begun building inventories for the holiday season, as they plan to introduce those goods earlier this year than last. All that just shows me that The Children's Place is confident it will continue to see huge growth, and that makes me want to own the stock.

My second back-to-school play is one of my old favorites, Abercrombie & Fitch(ANF Quote - Cramer on ANF - Stock Picks). Investing in teen retail is usually impossible, but this stock is so hated, I think you have to give it a look.

Abercrombie just reported a great quarter, and the stock ramped $5 the next day because the trade was so crowded on the short side. Even after that jump, I still think the stock is dirt cheap, selling at just 12 times next year's earnings, well below its historical multiple.

Abercrombie has managed to correct the inventory issues that plagued it for much of last year, and you can already see the improvement in the gross margins. The company faces tough comps for August vs. last year, so the shares could be volatile, but I think a lot of that weakness is baked into the share price. If it manages to post solid August comps, Abercrombie could head even higher.